Safe Bulkers Inc (SB) 2021 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss the second quarter 2021 financial results. Today, we have with us from Safe Bulkers Chairman and Chief Executive Officer, Mr. Polys Hajioannou; President, Dr. Loukas Barmparis; and Chief Financial Officer, Mr. Konstantinos Adamopoulos. (Operator Instructions) Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at (212) 661-7566. I must advise you that this conference is being recorded today.

Forward-looking statements. Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended concerning future events, the company's growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters.

Words such as expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct.

These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include but are not limited to change in the demand for dry bulk vessels, competitive factors in the market in which the company operates, business associated with operations outside the United States and other factors listed from time to time in the company's filings with the Securities and Exchange Commission.

The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

And now, I pass the floor to Dr. Barmparis. Please go ahead, sir.

Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the second quarter of 2021.

We're happy to present the financial results for the second quarter of 2021, and a synopsis is profitability, fleet renewal at the edge of the technology and deleveraging targeting to create shortly a company where its net debt is comparable to steel value of the vessels, creating value for our shareholders.

The above are presented in Slide 4. We reached $81.6 million of net revenues, $50.2 million of EBITDA and $0.31 of adjusted earnings per share. We ordered 8 vessels, GHG-EEDI Phase 3, NOx-Tier III compliant Japanese newbuilds with early deliveries, 2 in 2022, 4 in 2023 and 2 in Q1 2024 at very competitive prices ahead of our competition.

At the same time, we have sold 6 vessels, 3 of which are yet to be delivered with $47.6 million outstanding sale proceeds and acquired 2 secondhand Panamaxes. We believe that by 2024, we will be able to renew about 1/4 of the fleet, with 33 compliant newbuilds, while substituting, at the same time, some older vessels with younger secondhand vessels.

In terms of deleveraging, we have $125.5 million decrease in debt from $607.7 million as of 2020 year-end to $482.2 million as of July 23, 2021. At the same time, we maintain our financial flexibility by preserving a strong cash position of $115.6 million, and our undrawn borrowing capacity available under a revolving reducing credit facilities to $67 million. All these actions we believe will position the company to a whole new level of competitiveness, well ahead of the competition. We are here for the long run.

In Slide 5, we show balance sheet analysis. The assets are presented, of course, in their book value, noting that presently, we believe that asset values substantially exceeded the book value.

Let's turn to Slide 7 to have a quick look on present charter market conditions. As shown on the top graph, the Capes market for the year-to-date is outperforming 2020. Presently, Capes are trading at about $32,000. The year-to-date average at about $24,800 as compared to 2020 average for the same period, which was $9,600.

Similarly, for Kamsarmax, the market remained strong throughout this year. Presently, it trades at the region of $32,000 with a year-to-date average of $23,900 as compared to $7,900 for the same period in 2020. Current market prospects with strong demand and balanced order book are reflected in the FFA Cape, which is marked in healthy and sustainable levels.

Turning to the next slide, #8. We present the development on pricing of certain commodities, which are leading indicators for shipping. The continuous increase on prices during the last period is signifying their underlying demand. The strong demand from China continues, and the control of COVID-19 will lead to the opening and normalization of other importing countries as, for example, India. Furthermore, leading countries, such as United States and China, have been preparing for post-pandemic plans to boost their economies. These facts are expecting to enhance industrial growth and altogether to boost the demand for drybulk cargoes further.

On Slide 9, we present the status of the fleet in terms of values and expected supply. On the top graph, we present the values of 5-year-old Capes and Panamaxes as assessed by Baltic Exchange. During the last month, it has evidenced a sharp increase of the vessel values. For Capes, in particular, the values have surged more than 40% since the same period in 2020 and have gained about $21 million per vessel since the lows in 2016. Similarly, for 5-year Panamaxes, the values have gained about 45% since same period in 2020 and have gained about $18 million per vessel since 2016 lows.

The above assessment is indicative for the average Baltic-type vessel. Japanese built vessels big at high specifications have increased demand and can achieve even higher values. Our fleet consists of mostly Japanese big vessels with high specifications and many commercial and operational upgrades.

Looking on the order book on the bottom graph. We note that the growth of the fleet for both Capes and Panamaxes is minimal and does not exceed the 3% on each year. Taking into account the expected scrapping, we may conclude that the expected demand for drybulk vessels for the next years to come will be significantly higher than the actual supply of vessels.

Under current market conditions at shipyards both in Japan and China, we do not expect that the order book may increase significantly for the next couple of years. The shipyard identified with orders from other sectors, such as containers and tankers, and there is no space for additional drybulk orders. Furthermore, only a few shipyards have developed new environmental efficient designs, which, together with the ongoing environmental discussions for emission, is expected to discourage new orders.

Turning to the next slide, 10. We touch upon the current status of fuels and their pricing. Our company has invested in the exhaust gas cleaning technology, which allows our ships fitted with scrubbers to comply with IMO 2020 regulations for sulfur emissions by burning high-sulfur fuel oil instead of IMO-compliant fuel, which is a very low sulfur fuel oil.

The differential in the price between very low sulfur fuel oil and the high sulfur fuel oil, the so-called Hi5, is translated to avenues for scrubber-fitted vessels. Presently, the Hi5 differential in Singapore, for example, sits at about $125 per metric ton.

According to future markets, as shown in the graph on the bottom, these prices are sustainable through 2023. Scrubber-fitted post-Panamax consumes about 7,500 per year. This brings the scrubber gain to about $900,000 per year or about $2,500 per day.

The recovery of global economies, the restoration of mobility and the recovery of crude oil prices may lead to even higher, wider Hi5 differential. As shown in the top graph, presently, the Brent prices are trading to pre-pandemic levels at the highest of the last 5 years.

Let's summarize all the key takeaways in Slide #11. The order book is minimal and its lowest level since 2002 as decarbonization discussions not favor new orders. Most shipyards are preoccupied with containers and tanker orders until 2024, and only a few shipyards have developed new environmental efficient designs.

We have experienced an exceptionally strong start of 2021 with robust volumes of iron ore, coal and grain. Demand for commodities has been exceptionally strong during the first quarter. We have seen increased government spending on post-pandemic stimulus programs and continuing greening of the global economy. We have experienced Brent prices recovery, which may lead to even wider Hi5 spread differential than that of today of about $120 per ton.

And lastly, the aging of the fleet and the increased environmental restrictions for emissions may enhance the scrapping activity. This gives us a support for our process in relation to the market conditions that will prevail in the following quarters.

Now let me pass the floor to our CFO, Konstantinos Adamopoulos, for our financial overview.

Thank you, Loukas, and good morning to everyone. Let me start with our chartering performance in Slide 13, where we present our quarterly TCE, which stood at $21,098 versus our quarterly OpEx, which stood at $4,874.

Moving on to Slide 14, we present our quarterly daily OpEx, which stood at $4,874, and our quarterly G&A -- daily G&A, which stood at $1,448. The aggregate figure of those two numbers is $6,322, which demonstrates our focus on lean operations. We believe that this number is one of the industry's lowest, if not the lowest, given the fact that we include in our OpEx all our dry docking and pre-delivery expenses and, in our G&A, our management fees, Directors and officers compensation and all expenses related to our administration.

Moving on to our debt profile, as seen in Slide 15, we present our repayment schedule as of the end of June of this year. As of June 30, we had -- turning now to liquidity. As of June 30, we had $127.4 million in cash, cash equivalents, bank time deposits and restricted cash. We had another $67 million in undrawn borrowing capacity available under the revolving reduced credit facilities, and $54.7 million available in secured commitments for loan and trade and leaseback agreements in relation to 2 newbuild vessels and the refinancing of existing vessels.

Furthermore, excluding the vessels committed for sale, which have not been delivered yet, we had additional borrowing capacity in relation to 1 unincumbered vessel and 2 -- and to 3 newbuilds upon their delivery.

Slide 16 will present our debt amortization schedule versus the scrap value of our fleet. We have a smooth debt repayment profile for the next 2 years, gradually deleveraging our company following considerable debt repayments we have made this quarter.

If you now move to Slide 17 with our quarterly financial highlights for the second quarter of 2021 compared to the same period of last year. As a general note, during the second quarter of 2021, we operated in an improved charter market environment compared to the second quarter of 2020 with lower interest expenses while our net revenues of $81.6 million compared to $48.3 million for the same period in 2020 were further increased by the earnings from scrubber-fitted vessels and our reduced volume expenses.

During the second quarter of 2021, we had a time charter equivalent rate of $21,098 compared to $8,094 for the same period in 2020. The net income from the second quarter of this year reached $32.4 million compared to a net loss of $13.9 million during the second quarter of 2020.

Net revenues increased by 69% to $81.6 million for the second quarter of 2021 compared to $48.3 million for the same period in 2020 mainly due to the increased TCE of our fleet as a result of the improved market, assisted by the additional revenues and by our scrubber-fitted vessels.

Daily vessel OpEx increased by 3% to $4,874 compared to $4,729. This increase was a result of the combined effect of reduced dry dockings and provisions of technical services but increased crude repatriation expenses due to the COVID-19 pandemic.

Daily vessel OpEx, excluding dry docking and predelivery expenses, increased by 9% to $4,568 for the second quarter of 2021 compared to $4,207 for the same period in 2020. Our adjusted EBITDA for the second quarter of 2021 increased to $54.1 million compared to $6.3 million for the same period last year.

Our adjusted earnings per share for the second quarter of 2021 was $0.31 calculated on a weighted average number of 109 million shares compared to a loss per share of $0.16 during the same period in 2020, calculated on a weighted average number of 102.7 million shares.

Closing our presentation on Slide 18, we present our quarterly fleet data and average daily indicators compared to the same period last year. We would like to emphasize that the company is maintaining strong cash position of $115.6 million as of July 23 that provide us with flexibility to follow our plan, aiming to gradually renew our fleet with a view of forthcoming environmental changes in regulations and further deleverage our balance sheet, targeting to create value for our shareholders.

Once again, we would like to thank our seafarers for their commitment and dedication throughout this tough period. Our press release presents in more detail our financial and operational results, and we are now ready to take your questions.

(Operator Instructions) Your first question comes from the line of Ben Nolan from Stifel.

So I have a couple. The -- my first question relates to the newbuilding activity. Obviously, you guys have been sort of at the forefront of the innovations of design, but -- and have always had high-quality equipment from primarily Japan. But they're still conventionally fueled or use oil relative to some of the other designs that we see a lot now, be that maybe LNG or ammonia. Can you maybe talk through the idea of how you decided on your propulsion systems versus some of the other would seem to be increasingly popular alternatives?

Yes. I don't think that -- I mean, if you assess the actual situation, there are no presently other alternatives. Ammonia or hydrogen or alternative fuels will be under assessment, and I strongly believe that this will be the case. And we have, let's say, this shift towards the new fuels after about at least 10 years from now or even 15.

So we have followed a pragmatic approach. To tell you the truth, the LNG, as you mentioned, is not actually a real solution. It could be an intermediate solution, but LNG has a [discrete] factor of methane, which is, I think, about 100x more greenhouse gas effective compared to CO2. So it's not clear that if you order an LNG, this LNG will be compatible with the new regulations after 5 or 6 or 7 years.

The second point is that the other fuels basically do not exist. They're under discussions. And also -- and we know that because we are in the shipyards, and we participate in such designs also ourselves and probably [has the best] information.

On the other hand, we have followed a pragmatic approach, and when we say Phase 3, I want to make clear that Phase 3 is applicable after 2025. It's not the vessels that are produced today because, today, we have Phase 2 vessels, not Phase 3 vessels, which represent 20% reduction of emissions compared to 2008 and not 30%, which is a Phase 3.

So a Phase 3 vessel that we order is a vessel that will start its production between '25 and '30 before the vessels -- before the shift of -- to new technologies like, I don't know, maybe ammonia or hydrogen, whatever prevails, which will come towards the mid of 2030.

So I don't believe that there is a question whether you want to invest or not. This is an investment, which is a clear advantage to us. We will be -- we will have the best vessels compared to the market. We can compete easily, all the existing fleet, with extremely low emissions compared to everybody else and -- while the others will wait to see how the technology will come after 10 years from 2025.

Yes. I appreciate that. Although what we do sometimes see is people that order ships that maybe aren't fueled by whatever is the alternative but have the ability to be converted relatively easily. Is there any ability of the newbuilds that you have to convert to alternative fuels relatively easily?

If you can give me one name and one shipyard that has had a design, then we can discuss. So let's not say about work. Let's just say about reality. So I don't believe presently -- in principle, everything can be converted.

So an LNG, for example, can be converted, but it has a huge conversion force. You need to have a different systems for storage, et cetera, et cetera. So we don't want to play this game of advertisement. We just follow what is the best available technology right -- I mean, after 2025 to 2030, and between 2025 and 2030, you can order the technology that will be available for the next decade.

But if you can you give me a design, I can tell you whether -- what you say is correct, and we don't believe that the designs are creatable right now or even exist.

Got you. Okay. That's helpful. And then lastly for me. You guys have been pretty active -- very active under that ATM program that you have. Can you maybe talk through the thinking behind that? I mean, obviously, you are ordering new ships, but you're also selling older ships and making a lot of money on the existing fleet. So it doesn't look like you really need the money at the moment. What's the thinking behind the activity on the ATM program?

Look, the idea is very simple. We have designed a company that wants to create value for each shareholders, and I tell you that the majority shareholders is the family that owns our management and has young family. So the design we have clearly described how we look at company, that we'll be able to be very profitable in the future and also, at the same time, be able to pay dividends to the shareholders. We don't want a company which is over-levered. So this is the one point. We want a company which is -- has low leverage about, say, 30%, 35% of the assets.

Secondly, we don't want a company which has a fleet -- an old fleet that after 2023 and following, I mean, 2025, et cetera, we have to pay, the vessels will not be able to compete, especially when you have Chinese vessels. We'll not be able to compete with the -- in the market and have to pay environmental taxes, either in Europe or the United States or have to do -- to withdraw your fleet if it's in a Category E or you have to do additional investments within 3 years. If it's in Category B and to -- and all such vessels, we have substantial programs.

We want a company that has basically its backbone has solid Phase 3 vessels. We have also about 10, 11 eco ships, which were bought in the previous -- in 2015 and -- so this is the second point. So if you have a company with a low interest, low leverage, low interest expense, young fleet, Japanese fleet, durable company, solid company, low emissions, this company can -- will be able to generate the best profit after one year from now. And we'll be able to pay also dividend at certain point of time.

We don't want to create a company over-levered and pay a dividend now or do that. On this respect, we have -- we're doing 2 things. One is selling all the vessels, which you see this is a replacement, a renewal strategy, so we have sold a few vessels, and the prices in which we sell are very good.

And the second point that we are doing is that we have also the ATM, which at the end -- at the back of our mind, at a certain point of time, all companies from time to time access the public markets one way or the other. So it's not a big deal for us to have some equity in our balance sheet, which basically is not dilutive because, as you can see, the profits, we always pick the profits because the market is very good. And with the new technology ships, we will continue to do that.

So basically, this is an investment for the future of the company. And of course, when we do all this job in the right way as we have designed, then we will be able to continue, then we will able to do also to (inaudible) our shareholders in the future.

Okay. That's helpful. And since you brought it up, you talked about wanting to pay dividend. How close are you to that at this point? I mean you're making money, and again, the balance sheet is stronger. Is that something that you think is a 12-month or less kind of an event?

I cannot say how close or how far we are because half a year before, we were very far. But now, we are -- we could be closer. The issue is that, as you can see, we had deleveraged -- yes?

If I may add. A good market has started only 6 months ago, around February. We are still 6 months into a good market. It's most important for the company to develerage and renew its fleet first and then to consider the dividends. Because now we have work to do, and this is what we are doing, and we are not saying still. We prove it quarter after quarter for the deleveraging policy and the fleet renewal policy. So there will come a time that the dividend will come for the benefit of all shareholders.

Hello?

Yes? Did you hear that? Because I want -- the good market is only 6 months old. I mean, we expect this market should last a year or 2 more. And the order book is so small in dry bulk. All the yards are fully booked until first quarter of '24 with major activity in containers. And before that, we had major activity in tankers, but we have no activity in bulkers. So we expect a strong market with all the regulations that they are coming in front of us to prevail for more years, 1 or 2 years more from now. So a company to reinstate the dividend has to do it after you finish off with your deleveraging priority and your fleet renewal priority.

Your next question comes from the line of Randy Giveans from Jefferies.

I guess 2 questions from me here. Looking at your chartering strategy, you clearly have a lot of your days already booked for the back half of the year. Has your chartering strategy changed at all given the kind of current market strength? And then also, what are your quarter-to-date spot rates achieved, thus far? It seems like the vast majority of your third quarter is already booked so just trying to compare 3Q '21 versus the $21,000 a day you earned in 2Q '21.

Yes. Look, first of all, regarding the period charters, as I said in previous calls, the period charter is for the time still controlled by the major charterers through the so-called FFA caravan, the FFA, the forward freight agreements, and which for the forward years are not at satisfactory levels for '23 or '24. So you cannot really utilize 3- or 4- or 5-year charters that -- like we see now on container business. So the company prefers to work in the spot market for short period or up to 1 year because you can get a matching benefit during those periods.

I expect, as the spot market improves in the following quarters, that charters will come out and meet a higher freight rates for 2- or 3-year periods. But at the moment, we only see sensible numbers or be up to 12 months period. Beyond that, if you start talking for a 2-year period, the charters have heavy discounts. So I don't see what is the point for the company to invest in 2 years when you are doing the year 1, let's say, at the high 20s and the year 2 at the low teens. No point to fix year 2 at low teens and make average of $21,000, $22,000 a day because you can get it done the year 1 and then keep the ship in the spot market.

So we don't believe there will be order book in '22 or '23 to spoil the party from that point of view, and we still believe the supply will be strong because we see handysize rates of $30,000 a day, we see Supramax rates of $30,000 a day. We see Kamsarmax are the same, and Capesize at the same. We never before remember emphasize having $30,000 a day, even in the good times of 2010, 2011 that we have strong market. The handysize were earning $16,000 a day or $17,000.

So it means now the minor bulk is moving and is moving with the bulk carriers and not on containers. And this is boosting a lot the base of the market and the strength of the market. So I believe that the 2- or 3-year charters will have to wait a little bit longer before those come.

As far as the other question, you said about the third quarter, the numbers are increasing. Yes, this is true. But the market -- the levels have increased from Q1. So it's normal to expect that the numbers will be higher in the third quarter as it looks now. We only -- we're only through the first month of the third quarter, but it's higher than what it was in the second quarter till now.

Got it. Yes, yes. I was just saying with your reach in chartering activity, almost -- 100% of the third quarter's already booked, but -- all right. Well, looking at your balance sheet, you have obviously a very robust cash balance, $115 million plus, all the cash available from the asset sales. How are you looking at kind of current fleet in terms of renewal, looking at further acquisitions and maybe more divestitures of the older vessels? What are your plans on that in the coming months?

Yes. We have newbuildings. These -- we have sold 6 older vessels. So these are coming in as a replacement for the older vessels. I don't expect we can find reasonably priced newbuildings from now on. It will be very difficult, the type of ships we want from Japan. So we'll mostly concentrate on more than secondhand acquisitions. So if we are to sell a vessel built in '04 or '05, we'll try to replace it with a 10-year younger vessel built in 2012, '13, '14, that sort of period.

So from now on, we tend to concentrate on secondhand acquisitions. We have a couple of deals under negotiation we're going to conclude in the next few weeks. I mean, I think it's a prudent strategy to continue that way because, also in the shipyards, we see that their cost has gone up. The steel price is going up, so they are increasing their prices. So for us also, deliveries that is 2.5 years away now is looking a bit far away for us.

So we have to wait on new ships and also for now some time for new technologies to evolve. This may be in hydrogen vessels or ammonia vessels or other things or LNG, I don't know. No one knows what fuel will prevail and what technology will prevail. So we are happy we've got these 8 vessels to replace ships we already sold. And the priority for us is to keep renewing the fleet and to deleverage the company. And we are doing that very fast. As you have -- we have demonstrated in our last 2 quarter earnings, we have solid profits, is looking good, and let's make the company as attractive as possible for investors to join in and enjoy the very good returns in the next quarters that are coming.

(Operator Instructions) There are no further questions at this time. I will hand the call back to you.

Thank you very much for attending this conference call where we presented our quarter results, and we are looking forward to discuss again with you in the next quarter. Thank you very much again, and have a nice day.

Thank you.

That does conclude today's conference. Thanks for participating. You may now disconnect.